The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has affirmed its BBB+/Stable corporate issuer rating on Norwegian utility Eidsiva Energi AS along with the BBB+ senior unsecured debt rating and the S-2 short-term rating.

Rating rationale

The issuer rating of Eidsiva reflects Scope’s assessment of the company’s low business risks and more aggressive financial risk profile. With more than 80% of Eidsiva’s EBITDA coming from the monopolistic grid business, which generates predictable cash flow, Scope assesses Eidsiva’s blended industry risk as low.

Helped by the disposals of Moelven and Innlandskraft shares last year, selected financial credit metrics ended YE 2020 on a positive note, exemplified by a Scope-adjusted debt/EBITDA ratio of 4.6x against the expected 5.0x. However, Scope expects leverage to return above 5x going forward as capex remains high and the sizeable dividend payout prospect remains. Further, last year’s weak Nordic power prices negatively affected dividends received from Eidsiva’s minority shareholding in Hafslund-ECO Vannkraft (HEV). However, this is expected to reverse the current year.

Scope’s medium-term base case expects leverage of above 5x on average, even when adjusting for the expected dividend from HEV. Further, the rating agency expects interest cover of slightly below 7x and a funds from operations/Scope-adjusted debt ratio of around 15%. The revised levels do not negatively impact Eidsiva’s overall financial risk profile rating but have put pressure on selected credit ratios, especially leverage, making both financial flexibility and the rating headroom lower going forward.

During the last 12 months, the company’s liquidity ratios have improved, with short-term debt refinanced through several new long-term issues. Refinancing needs will therefore reduce, but funding needs remain noticeable as Scope projects negative discretionary cash flow of almost NOK 3bn for the next two years, which will increase Scope-adjusted debt to more than NOK 17bn at YE 2022.

Within the supplementary rating drivers, we continue to use our bottom-up approach to analyse Eidsiva’s parent support, and the one-notch uplift assigned for municipality ownership has not changed.

Outlook and rating-change drivers

The Stable Outlook continues to reflect Scope’s expectation that Eidsiva will generate a significant part of its EBITDA from monopolistic, regulated grid operations. The Outlook also assumes that the funds from operations and interest coverage ratios will be higher on average compared to pre-2020 levels and that Eidsiva will continue to be owned by Norwegian municipalities.

A positive action could be warranted by a reduction in overall leverage, via positive free operating cash flow or further asset disposals, exemplified by a Scope-adjusted debt/EBITDA of around 4x on a sustained basis.

A negative rating action could be triggered by a weaker financial risk profile (e.g. through higher capex and dividends), leading to a Scope-adjusted debt/EBITDA sustained at well above 5.25x and an interest cover of below 5x. In addition, it could be triggered by the company losing its status as a government-related entity.

Long-term and short-term debt ratings

The BBB+ senior unsecured debt rating, which is in line with the issuer rating, is based on the company’s standard bond documentation, which includes a pari passu and negative pledge. All debt is issued by Eidsiva Energi AS. The S-2 short-term rating has also been affirmed, reflecting the improving short-term debt coverage (due to the continued refinancing of previous short-term transaction-related debt) and continued good access to both bank loans and debt markets.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and Outlook, (Rating Methodology: Government Related Entities, 6 July 2020; Rating Methodology: European Utilities, 18 March 2020; Corporate Rating Methodology, 26 February 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings was not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Executive Director.
The Credit Ratings/Outlook were first released by Scope Ratings on 8 December 2017. The Credit Ratings/Outlook were last updated on 24 March 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.